Daily Voice: An optimistic FY27 requires perfect hand-off from govt spending to private consumption, flawless execution by top three private banks, says Ambit’s Nitin Bhasin

Nitin Bhasin is the Head of Institutional Equities at Ambit Capital

• Most drivers of GDP growth unlikely to show meaningful acceleration over next year
• Consensus forecast of 15% EPS growth for FY27E not broad-based
• Outlook remains negative for next 12–18 months, given lack of visibility on any sustainable near-term catalysts

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According to Nitin Bhasin, Head of Institutional Equities at Ambit Capital, an “optimistic” FY27 scenario requires a perfect hand-off from government spending to private consumption, along with flawless execution by the top three private banks.

He noted that the consensus forecast of 15 percent EPS growth for FY27E is not broad-based; rather, it is a concentrated bet on the BFSI sector, which is expected to contribute nearly 50 percent of the incremental earnings for the Nifty 50. Any sectoral headwinds in BFSI could derail the index’s overall earnings trajectory.

From a macroeconomic perspective, he believes that most drivers of GDP growth are unlikely to show meaningful acceleration over the next year, thereby limiting upside to the FY26E and FY27E GDP growth estimates of approximately 7 percent.

Overall, his outlook remains negative for the next 12–18 months, given the lack of visibility on any sustainable near-term catalysts.

Do you think the Supreme Court’s order is a major setback to Trump’s agenda, even though he is likely to explore alternative options to impose import tariffs?

This is a setback for President Trump because the International Emergency Economic Powers Act (IEEPA) allowed him to bypass bureaucratic delays and unilaterally impose tariffs on any country. Alternative measures like Sections 122, 301, and 232 are more restrictive, requiring lengthy investigative procedures, rigid timelines, and congressional oversight that result in a slower, more piecemeal approach.

Has the ruling added fresh complexities to trade deals that have already been signed or are close to being finalised, especially in light of the Supreme Court’s order?

The Supreme Court ruling has effectively nullified the legal basis (The IEEPA act) for the US-India interim deal, which had set a reciprocal tariff of 18 percent for Indian exporters from the earlier 50 percent. With President Trump turning to Section 122 to impose a 10 percent tariff (now raised to 15 percent), the new rates are still lower than those in the original deal.

However, this 15 percent tariff doesn’t last long, Section 122 is valid for only 150 days, and after that, any extension requires Congress’s approval. These developments have led India to defer its trade talks with the US. Adding to the uncertainty, the US administration is now exploring legal options to enforce the previously negotiated tariffs (18 percent). This entire episode has created more uncertainty than certainty.

With this ruling, do you think the equity market is now less concerned about Trump, even though he remains aggressive and committed to his agenda?

Concerns that have kept markets range-bound over the past 15–18 months extend well beyond Trump tariffs. While a ruling that limits near-term disruption may remove one layer of uncertainty, it does little to change the broader risk landscape investors are navigating.

The more enduring overhang has been growth concentration and normalization unfolding against elevated valuations. In this environment, the market’s sensitivity to negative triggers increases materially.

India is currently in a mid-cycle slowdown, marked by normalization in both GDP and earnings growth. The proportion of companies delivering strong profit growth is declining, while those reporting negative EPS surprises are rising. The expensive multiples already price in some positive surprises, if any! Although the government’s recent counter-cyclical measures (GST and repo cuts) have spurred demand, its sustenance remains a key monitorable. Overall, our outlook remains negative over the next 12-18 months, given the lack of visibility on any sustainable near-term catalysts.

What could be the next triggers for the market that may help sustain the upward momentum from current levels?

A broad-based earnings growth acceleration could drive markets upwards, but downside risks remain elevated.

From a macro perspective, most drivers of GDP growth are unlikely to show meaningful acceleration over next year, limiting upside to our FY26E & FY27E GDP growth estimate of ~7 percent. Consumption (56 percent of GDP) remains the primary driver of growth, and recent countercyclical measures by the government have supported demand. However, weakness in the formal labour market, particularly in IT and BFSI, limits upside.

Nifty’s EPS growth moderated to ~7 percent in FY25 & forecast for FY26E stands at ~6 percent.

Consensus forecast of 15 percent EPS growth for FY27E is not broad-based; it is a concentrated bet on the BFSI sector, which is expected to contribute 50 percent of all incremental Nifty earnings. Moreover, HDFC Bank, ICICI Bank & Axis Bank are forecasted to contribute ~72 percent of BFSI’s incremental growth. Any sectoral headwind for the BFSI sector could derail the entire index’s earnings trajectory.

An "optimistic" FY27 requires a perfect hand-off from government spending to private consumption & flawless execution by top 3 private banks.

What is your outlook on the EMS sector, given that your recent analysis highlighted a growing divergence between reported earnings and cash flow generation, driven by rising working capital intensity and aggressive expansion?

We are positive on the EMS space given the large import substitution opportunity & export opportunities driven by GOI's PLI/ECMS initiatives. But most companies are naturally in their capex phase as they scale capacities; this limits their FCF (free cash flow) generation. Our preference is towards consumer EMS companies which generate significant operating cash flow, limiting need for significant equity dilution to fund this capex.

Are you concerned about US–Iran tensions, particularly considering their potential impact on oil prices and inflation?

Yes, it is a key monitorable. Escalation could disrupt supply and push crude higher, posing upside risks to inflation and potential marketing under-recoveries for OMCs. However, ample spare capacity may limit sustained spikes unless there is a material disruption to Iranian exports or regional shipping routes.

Would it be prudent to consider investing in the IT sector only after the first half of CY2026 earnings are announced?

Historically, in environments characterised by growth slowdown and rising market concentration, sectors with strong cash flow characteristics — effectively defensive positioning — have tended to perform relatively well.

From our IT analyst perspective, the Gen AI disruption is real, with its most immediate impact being an increase in decision-making uncertainty. The sector has already navigated phases of macro, political, and now AI-driven uncertainty. While the quantum and speed of disruption remain unclear, some degree of growth deceleration appears inevitable.

Concerns around terminal growth rates persist. We see pockets of value emerging within large caps, where FCF yields provide a degree of downside support. However, within mid caps, growth expectations remain relatively elevated and valuations are yet to reset sufficiently to suggest meaningful upside asymmetry.